THE PROPRIETATEA FUND MAKES A BUYBACK OFFER AT THE FACE VALUE Playing poker with the compensations

The operation of buying back its own shares appears paradoxical.

On one hand, the reduction of the number of outstanding shares, as well as the fact that there is a constant buyer (the Fund itself) together, logically lead to the rise of the price of the stock market, on one hand; on the other, the proposal to the General Shareholder Meeting is to cut the face value of the stock.

Since the face value is 1 leu/share, and the stock market price is 0.77 lei, the combination of the two actions means that the price of the stock in the market and its face value are converging.

But if we remember the reason why the Fund was created in the first place and we consider its current use, we will find an interesting story.

The idea of the Proprietatea Fund started from the idea of the Ministry of Finance led by Ionuţ Popescu in 2005. The authorities have invented an absolutely "original" mechanism to allegedly pay damages to the citizens robbed by the communist regime.

People who, over 50 decades of communism, were forced to move into the servants' rooms in their own homes, and even more, to pay rent for that to the Romanian state, have fought in court for decades to get their compensation.

Instead, even though the state acknowledged their rights, they received as compensation shares in the Proprietatea Fund, which was fed with money and stock from the country's wealth.

Of course, nobody was happy that instead of receiving their fair compensation, they received shares whose value fluctuates in the market, at a face value which for a long time proved to be three times higher than what they could actually get by selling them.

Just like they had been dispossessed of their goods by the Communist state, they were compensated in the same way: using violence.

Faced with the fear of not getting anything at all in the future, they have accepted what was given to them - shares in the Proprietatea Fund.

It's better to at least get something than to get nothing.

Many of them were old and poor and didn't have the power to fight anymore. That is when some sharks bought all their shares at a price five times lower than their face value, on an informal market.

The heirs of the victims were "compensated" with one fifth of the value of what the state had stolen from them, leaving a huge space for the valuation of these so-called "compensations".

The moment Franklin Templeton took over the management of the Proprietatea Fund it said that it wasn't interested in the compensation mechanism and that the Proprietatea Fund would act like a standard investment fund.

As a result, it abandoned huge assets which it would have been entitled to because it wanted to justify its management.

Obviously, nobody asked those who were compensated "what they actually wanted".

Today, when the market price tends to get close to the face value of the stock, and when the Proprietatea Fund is making a buying offer at 1 leu/share, the new owners - of which very few are still from among those who were actually entitled to compensation - are getting the fair value of their compensation from the Romanian state.

The "compensation" mechanism created by Ionuţ Popescu is the mechanism of any game of chance: just like poker, the one who has the most money wins.